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Alabama Judge Rules on Sales Tax and Nexus

  • Jan 14, 2013 | Gail Cole

 Alabama: Where There is Nexus, There is Sales Tax. Where There is Not, There is Not.

How much of a presence in a particular tax jurisdiction is enough to create nexus? What types of activities / transactions require the collection and remittance of sales tax? An Alabama judge recently deliberated this issue and ruled that in at least one case, one sales transaction by one individual in the course of a year was not enough to establish nexus.

The taxpayer in question runs a sport photography business from an office in Montgomery, Alabama. Business is solicited via telephone calls. During the course of two and a half years, the taxpayer photographed teams and players in jurisdictions outside of Montgomery four times, without collecting sales or use tax. The Alabama Department of Revenue eventually assessed the taxpayer city and county use tax on those sales.

In the Alabama case, Chief Administrative Law Judge Bill Thompson determined that "one sales call by a single salesman in a local taxing jurisdiction does not establish nexus with the local jurisdiction for purposes of obligating a retailer to collect and remit that jurisdiction's sales tax." (Van Horn v. Ala. Dep't of Rev., Admin. L. Div. Dkt. No. S. 12-863 (Jan. 3, 2013)).

Although Judge Thompson ruled that the taxpayer was not liable sales or use tax on those particular transactions (either the sales calls or the visits), the Alabama DOR has yet to agree. ADOR may decide to appeal the ruling.

The question of how much of a presence creates nexus has been pondered in our country since at least the mid 1960s, when in National Bellas Hess v. Department of Revenue, the Supreme Court held that a state cannot collect use tax from a seller "whose only connection with customers in the State is by common carrier or by mail." It was raised again with the 1992 Supreme Court case Quill v. North Dakota, and it has garnered even more attention in recent years because of increased internet sales through such online retail giants as Amazon.com and Overstock.com.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.